Does Australia’s New Smoking Ban Violate Its TRIPS Obligations?

Does Australia’s New Smoking Ban Violate Its TRIPS Obligations?

The High Court of Australia recently upheld Australia’s austere new law, which, in an effort to curb tobacco sales, requires plain packaging of cigarettes and prohibits company branding. The packaging must also include large warnings on the dangers of smoking, which include harsh pictures that portray the potentially negative effects smoking can have on the body. Shortly following this decision, New Zealand announced that they plan to impose similar legislation. Unsurprisingly, tobacco companies are not thrilled with the new law. Tobacco companies have spent millions if not billions of dollars making a cigarette more than a cigarette. For instance, Marlboro has the tough weather-beaten man with the large cowboy hat, two days of stubble on his face, and a Marlboro cigarette slanting from his mouth. The unstated message is clear: If you smoke Marlboro, you’ll be as cool as Clint Eastwood was in Dirty Harry! Now, instead of their product being associated with Clint Eastwood or the like, cigarettes are now associated with the worst forms of cancer.

Tobacco companies plan to appeal to the WTO claiming that Australia’s law is in violation of the TRIPS agreement. Preliminarily, it appears that there are two lines of argument they propose. First, the Australian government is failing to recognize the trademark rights of tobacco companies and is therefore in violation of their TRIPS obligation. Second, Philip Morris, one of the largest tobacco companies who is based in Hong Kong, argues that the Australian government is expropriating the intellectual property rights of the cigarette companies for the benefit of a public health campaign, and they are therefore entitled to remuneration under the 1993 Australia-Hong Kong bilateral investment treaty (BIT).

The first argument presents a tension between Australia’s international obligations and their own domestic policy interests. Article 20 of the TRIPS agreement provides that the use of a trademark “shall not be unjustifiably encumbered by special requirements”. In other words, it would appear that TRIPS provides tobacco companies the right to use their trademark on their packaging without any restrictions; the “plain packaging” requirement would not allow them to use their trademark at all. The next question is: Can the encumbrance be “justified” under Article 20? Article 8 of TRIPS allows a member state to “adopt measures necessary to protect public health and nutrition”. Reading Article 8 in conjunction with Article 20, Australia can raise a plausible claim that their encumbrance of tobacco companies’ trademark is justified and necessary in order to protect public health and combat smoking related diseases.

Furthermore, a central feature of the TRIPS agreement is “national treatment” of foreigners, which is articulated in Article 3. The authors of these multilateral agreements recognized the impossibility of creating one unified rule that would apply to many different countries that have disparate values. They also recognized each country’s desire for sovereignty—the desire not to be told what to do by other countries. As a consequence, instead of creating a single unified rule, TRIPS requires that each country make their own rules on the subject; however, they must treat all participating members to the agreement equally, and not discriminate amongst members. Therefore, in this circumstance, Australia has a ban on all Tobacco companies and not merely foreign companies. It would therefore seem unlikely that the Tobacco companies can win on this claim since it would encroach on Australia’s sovereignty—Australia should be able to deal with the cigarette pandemic in a manner they believe appropriate, and should therefore be allowed to limit trademark protection to achieve this policy objective.

The second argument, however, is more interesting. The BIT provisions regarding expropriation are similar to United States laws regarding “eminent domain”: A country cannot seize the property of a foreigner without adequately compensating them. Aside from the policy considerations this line of argument would run into—namely, if this is considered to be an expropriation, it opens the Pandora’s box for any new national legislation to be considered an expropriation—in order to succeed on this claim, the cigarette companies would have to prove at least two things: First, their trademarks are considered “property” under the BIT, and secondly, the government is “taking” the cigarette companies’ property.

This brings us to the question: Is a trademark a property right or merely a legislative right? There is no definitive answer to this question; however, it seems clear that the E.U. considers trademark protection to be a legislative grant, whereas the United States considers it more of a property right. This is because the United States’ notion of ownership is based on the Lockean theory of property—effort creates ownership, which in turn creates the right to exclude; the effort to create the goodwill in a mark creates ownership of the mark. To this end, the USPTO requires that a trademark be in use in order to register the mark, and that a prior user of an unregistered mark is able to prevent a later user from registering the mark. (The PTO does have “Intent to Use” applications, which allows future trademark users the ability to protect their soon-to-be-used marks; however, at the time of the application, it is not a trademark, and only becomes a trademark when the owner uses the mark.) However, the EU has a first-to-file system: Whoever files the trademark first, regardless of whether the party is actually using the mark, has ownership of the mark. This appears to be more of a legislative grant than a property right. It would appear that the traditional twin rationales of trademark protection are the sole policies that underpin the E.U. approach towards trademark protection— the policy objectives of reducing consumer search costs and enhancing marketplace competition by providing a venue for companies to distinguish their products—; however, a trademark does not grant any inherent property rights to the owner. It can therefore be taken away by a legislative act without triggering any law against expropriation.

If a trademark were to be considered property, is the Australian law a “taking” under the BIT? On this argument, the cigarette companies may be on firmer ground. For instance, in the seminal case of Metalclad Corporation, the arbitration tribunal found that the Mexican government, by not allowing a waste disposal company use their site to dispose their waste through environmental regulations, expropriated the property through regulation, and therefore had to pay damages. In this case, cigarette companies have invested exorbitant amounts of money creating brand recognition. If the WTO considers a trademark to be property, it would be interesting to see if this is considered a regulatory taking.

Charles Wolofsky

The Fordham Intellectual Property, Media & Entertainment Law Journal is one of the leading scholarly law journals dedicated to the publication in all areas of intellectual property law.